Julia Gillard gave a keynote speech at the Energy Policy Institute of Australia lunch on Tuesday.
Photo: Tamara Voninski

NSW and Queensland have hit back at Prime Minister Julia Gillard over her attempt to push state-owned electricity transmission companies to cut back the $30 billion-plus bill for network upgrades across the eastern ­seaboard.

In a new strategy designed to counter the Coalition’s relentless attacks over the carbon tax, the Prime Minister wrote to the premiers asking them to end network so-called gold-plating following weaker forecasts for power use, a step designed to reduce pressure on household power bills.

The government wants a debate about loosening the rules for the reliability of networks, which would save money but could lead to “brown-outs”. She also wants more peak-charging for electricity, a politically unpopular move that requires sophisticated ­electricity meters in homes.

“We won’t lightly use the big stick of regulation, of stronger powers for the Energy Regulator and the ACCC,” Ms Gillard said yesterday. “But it’s a stick we hold and which we’ll use if required. One way or another we’re going to get this done.”

NSW Energy Minister Chris Hartcher said Ms Gillard had shown a “gross misunderstanding” in blaming state-owned companies for price rises, given a federal regulator signed off on electricity network price rises.

“Frankly, it is gold medal hypocrisy for the Prime Minister to blame the states for price rises when every one of these price rises goes through a federal regulator,” he said. The decision over investment rules for the national electricity market, one of the world’s longest interconnected power systems, is one of the biggest challenges to the market since it was formed in 1998.

It also demonstrates Ms Gillard’s determination to push back against one of Mr Abbott’s top political issues.

Ms Gillard said some people were struggling to pay higher bills while the NSW and Queensland governments were “doing very well” out of their state-owned electricity assets because revenues were growing much faster than in the private sector.

NSW and Queensland did not respond directly to Ms Gillard’s request to review spending on transmission networks by their state corporations. Victoria’s electricity market is already deregulated.

The Australian Energy Market Commission is considering rule changes proposed by the Australian Energy Regulator and major energy users – changes opposed by the Queensland and NSW governments – that include modifications to the generous borrowing costs allowed for state-owned corporations.

The rules allow state-owned power grids to make “gold plated” investments and then claim a guaranteed return, critics say.

If the changes are not made by the commission, it will require agreement between the federal and state governments to change the rules for the national electricity market.

Electricity networks are expensive because of the long distances they cover and the high demand for short periods. About $11 billion of power infrastructure is used for the equivalent of four days a year.

In her letter, Ms Gillard said action needed to be taken before the next price determinations by the Australian Energy Regulator in 2013.

There is concern within the federal government Energy Minister Martin Ferguson has been too slow to address the issue of rising network costs, making Labor vulnerable to the opposition anti-carbon tax campaign.

Addressing a business function in Sydney, Ms Gillard said the states had to share responsibility with Canberra to reduce pressure on household power prices, which have surged almost 50 per cent on average over the past four years, excluding the carbon tax, which began on July 1.

“The inefficiencies that exist in the current system cannot be ignored,” she said.

The Coalition argues Ms Gillard seized on the issue of over-investment in network assets now Liberal state governments are in power.

“This is a prime minister who is now trying to blame the states for electricity price rises that are largely caused by her carbon tax,” Mr Abbott said.

“Frankly, it is gold medal hypocrisy for the Prime Minister to blame the states for price rises when every one of these price rises goes through a federal regulator. So, for the Prime Minister to blame the states for this is both misleading and ignorant and, frankly, her effort today is a total political own goal.”

Ms Gillard said the impact of the carbon price on power prices was far outweighed by the impact from investment in electricity transmission systems, much of which is not used except for a few days each year in periods of peak demand.

The carbon price had pushed up prices by about 10 per cent, as forecast, which was being offset by tax cuts, family payments and pension increases, Ms Gillard said.

But power bills have jumped nearly 70 per cent in NSW in the past four years and half the rise was due to higher network charges, she said.

The use of smart meters, which allow consumers to adjust their power use depending on prices, has been controversial in Victoria, where consumers have questioned the benefits.

Queensland Premier Campbell Newman has previously promised to conduct a review into the state-owned network companies.

Victorian Premier Ted Baillieu said at the last COAG meeting the federal government, and some Labor states, had argued there was no problem with construction costs and then in the “very next breath” complained about the costs of installing new energy infrastructure.

“She’s got to be kidding, seriously Julia Gillard has got to be kidding,” Mr Baillieu said.

Ms Gillard advocated using new technology such as variable pricing during high-demand periods to give more control to consumers.

“People need and deserve more choice and control,” she said, urging more states to follow Tasmania and the ACT in signing up and implementing the National Energy Customer Framework, which provides better information on bills and plans for those struggling to pay.

The Business Council of Australia has been pushing for energy market reform and deregulation of retail electricity prices in states such as NSW and Queensland.

“While the Business Council does not believe governments should play an active role in determining electricity prices, they do have a responsibility to implement sensible regulatory policies to ensure the energy market operates efficiently and effectively,” chief executive Jennifer Westacott said.

Energy Efficiency Council chief executive officer Robert Murray-Leach said consumers were paying for the equivalent of the Taj Mahal.

“The energy network has all the trimmings of gold and marble that aren’t necessary for a functioning electricity market,” he said.

Energy Supply Association of Australia chief executive Matthew Warren said the only way to fix the problem of cost increases was to continue the reform agenda started around Australia in the 1990s.

“The energy network has all the trimmings of gold and marble that aren’t necessary for a functioning electricity market,” Mr Murray-Leach said.

with Michaela Whitbourn, Mark Ludlow and Mathew Dunckley

AAP

Correction

A previous version of this story incorrectly stated that the Business Council of Australia supports reregulation of retail electricity prices in states such as NSW and Queensland. The BCA supports deregulation of retail electricity prices.

BY Angela Macdonald-Smith

Angela is chief of staff, energy and utilities, based in our Sydney newsroom.